The market is increasingly turning against the US dollar. The number of short positions is now at its highest level since January 2012, according to a currency market and interest sentiment survey by Bank of America.
This change in sentiment is due to the US Dollar Index, which compares the value of the dollar to a basket of six major currencies, having declined by 1.3% so far in 2024.
Record bearish positions show deep skepticism about the dollar
The latest research from Bank of America shows that the dollar position in February was the most negative in over 14 years. Additionally, total dollar exposure has fallen below the low of April 2025. This indicates that fund managers' confidence is further decreasing.
Despite attempts to restore confidence in the Federal Reserve, doubts remain high. President Trump tried to reassure investors about US monetary policy with his appointment of Kevin Warsh as Fed chair in January 2026. However, this action has not strengthened confidence in the dollar.
“Respondents in the survey see further signs of weakness in the US labor market as the biggest risk for an even weaker dollar,” reported the WSJ.
Meanwhile, the bearish sentiment comes as the US Dollar Index is sliding significantly. In 2025, the index fell by 9.4%, and this decline continues this year.
On January 27, DXY fell to 95.5, the lowest level since February 2022. At the time of writing, DXY has risen again to 97.08.
Market analysts are increasingly looking at technical signals indicating an additional decline of the US dollar. Trader Donny predicted that the index may drop below the 96 level.
“I see another bearish leg forming in the DXY,” he wrote.
Other analysts are looking even further ahead. The Long Investor pointed to long-term charts that he believes indicate a much deeper structural decline. He thinks that bearish targets could extend into the 52–60 range in the 2030s.
Some analysts, however, see opportunities for a recovery of the dollar. According to The Macro Pulse, recent price behavior suggests that the index may enter a “potential bottoming process.”
“My base case scenario is a recovery towards 103–104 by July 2026,” the report said.
Implications for the crypto market
A weaker dollar usually creates more favorable conditions for risky assets, including cryptocurrencies. When the dollar declines, investors often seek alternatives with higher returns or protection against the depreciation of fiat money.
Especially Bitcoin is often seen as a hedge against the devaluation of inflationary money. Therefore, this may increase Bitcoin's appeal during periods of dollar weakness.
However, the relationship between dollar weakness and crypto increases is not always direct. The broader macroeconomic situation remains very important.
If a weaker dollar is the result of weakening growth in the US or a greater chance of recession, investors may become cautious. In such a situation, capital often flows into traditional safe havens, such as gold, rather than more volatile digital assets.
Recent positions show that investors remain cautious. Bullish positions on gold have increased, suggesting that many investors maintain confidence in the precious metal.
As the dollar continues to decline and fund managers hold onto historically bearish positions, time will tell whether the crypto markets can benefit from the changing currency dynamics, or whether ongoing macro uncertainty continues to hold back upward momentum in digital assets.
